The Aberdeen Equity Income Trust and Shires Income PLC are to combine to create an investment trust with net assets of over £300m.

The deal is expected to complete by the end of the first quarter.

The equity income trusts agreed heads of terms for a proposed combination which will be led by Thomas Moore (current portfolio manager for the Aberdeen trust), supported by Iain Pyle (current portfolio manager for Shires).

The trusts anticipate that the increased scale will attract a broader range of investors, higher trading volumes and improved market liquidity.

Both trusts are currently trading close to their net asset value and have consistently outperformed the FTSE All-Share Index.

The enlarged trust will retain the Aberdeen Equity Income Trust’s existing structure and incorporate features from Shires including exposure to investment-grade fixed income securities and preference shares and selective exposure to overseas equities in developed markets.

The OCR (ongoing charges) for the enlarged investment trust will be capped at 0.78%.

Shires shareholders will be given the choice of either receiving new Aberdeen Equity Income Trust plc shares, or receiving cash for their shares (capped at 25% of Shares’ issued share capital). Shires shareholders will be offered the opportunity to roll their investment into the Aberdeen Equity Income Trust without triggering a capital gains tax charge, subject to HMRC clearances being received.

Sarika Patel, chair of the Aberdeen Equity Income Trust, said: “Bringing together two high-quality investment trusts with aligned objectives, a shared management team and complementary portfolios, the enlarged Company will benefit from greater scale, improved liquidity and lower costs.

“The board considers that this is a rare proposal in the investment trust sector since the scheme will be undertaken from a position of strength, where both companies are performing strongly and have share prices which are either trading at, or very close to, a premium to their underlying NAVs.”

Aberdeen has agreed to cover direct transaction costs from the combination (excluding portfolio trading and stamp duty), which it expects to redeem through an offset against future management fees.

Both firms confirmed that there will be no reduction in dividend income for existing shareholders of either company.